With the tax deadline having recently come and gone, many small business owners may think the time of stress that often accompanies filing is over, but unfortunately government data shows that these organizations may be targeted for audits in the near future.
A recent study by the Internal Revenue Service's independent National Taxpayer Advocate showed that small business owners in certain parts of the country are more likely than others to try to falsify claims on their filings, and as such auditors might be more interested in taking a closer look at the documents submitted by such companies, according to a report from the Washington Post. In particular, businesses with larger revenues are more likely to be audited, as in general the IRS tends to find that kind of thing to be at least somewhat suspicious and worth looking into.
What can small business owners do to reduce concern?
As a consequence of the potential for increased federal scrutiny of small business tax filings, it may be wise for owners of these companies to do all in their power to gather up the necessary documents and make sure they're doing everything they can to prepare for any potential examination of their books, the report said. One way in which some unscrupulous companies may try to reduce their tax liability is by fudging the numbers when it comes to their mileage on their work vehicles, estimating or even exaggerating them, so that they can ask for larger refunds.
For this reason, it's important for small business owners to do two things: First, they should make sure their workers are not only recording their mileage for work, but mapping it out, the report said. This will simply help to increase documentation of mileage and therefore make it easier to prove what was and was not being claimed on taxes. Second, it should be kept in mind that only work-specific trips count when keeping tabs on mileage. Even things like commuting to and from the office cannot be claimed on taxes, and therefore it's important for owners to make sure their employees know that so they're not over-claiming their driving time.
Further, it's also wise for owners to keep close tabs on business-related meals and entertainment, because while they can be claimed, not all are created equal. Some can only be claimed for up to 50 percent of the cost, and it's also important that these purchases be kept within reason. Those which claim a large amount of meals or outings may be inviting significantly more scrutiny from the IRS, and as such it can be wise to make sure to not claim too much in this regard, and once again make sure everything is documented as completely and accurately as possible so that if an audit does come down the line, everything claimed can be reasonably proven.
Higher tax burdens and the potential for being audited by the IRS can weigh heavily on many small business owners' minds, at a time when they may have other worries about keeping their companies running. For instance, many are now facing significant bills for small business insurance policies, including those for liability insurance or workers compensation insurance. Moreover, those that are looking to expand their operations in the coming months may face even more significant burdens for these types of coverage, leading to increased concerns. As a result, it may be wise for small business owners to not only adequately prepare for the possibility of an audit, but carefully assess all aspects of their companies before making any major decisions that will affect their bottom lines.